For many years the answer was not clear. It was not only a question of innovation; markets and technology were being developed. The advance of smartphones and internet penetration led to the creation of innovative companies coming from LAC. It was just a matter of time.

The role of entrepreneurs

Not only innovative companies are coming out of LAC, but also scalable companies. The growth in number of the region’s US$1+ billion companies is attributed to the expansion of the global market itself.

As part of the study of LAC giants released by NXTPLabs and FOMIN earlier this year, Tecnolatinas, we featured the most valuable companies. We found 9 companies with a valuation exceeding the +1 billion. And, as it is a growing market, these days, LetGo was added to this top list. This is just the top of the iceberg. There are more than 125 companies valuated over US$ 25M mapped in the Tecnolatinas report. Reaching this kind of valuations used to take more than a decade before … think for example in the founders of Despegar o MercadoLibre. But it only took two years for Let Go to reach that valuation with a complete disruptive business model.

Having this kind of cases makes the region grow. It also shows the shift at the entrepreneurial mindset. In the 90's the hero entrepreneurs were the “Serial Entrepreneur,” the one who sold his company. After 2010, that changed. Now is the one who grows his company from zero to Initial Public Offering (IPO), examples of that are the founders of MercadoLibre, Globant or Despegar.

As Francisco Coronel stated in his article Copycats vs. Disruptors, there are more companies coming out from LAC with innovative business models. He quoted two of NXTP Labs´s portfolio examples:

Semtive is producing affordable small turbines designed for low wind speeds — unlike traditional wind farms that rely on speeds of 30 mph or greater.

Satellogic has launched its six nanosatellite into orbit, and plans to build a constellation of nanosatellites that will generate real-time images from all over the globe — a highly valuable asset for hundreds of industries. Satellogic’s approach has the potential to actually disrupt the satellite data market.

We only mentioned two of the many existing cases. Especially in the fintech arena, there are more startups creating solutions for unbanked segments of population, which is a typical problem of emerging markets such as LAC.

The role of goverments to encourage the entry of investors

As the governments are catching up and supporting entrepreneurs, we still lack private investors putting their money in LAC venture funds. The private sector (including corporations) needs to think with a long-term approach of investing in high impact and dynamic startups, as well as contributing to build ecosystems.

There is still a substantial difference between the origin of the funds in the Americas. In US, 70% of funds for venture capital come from private institutional investors: pension funds, endowments, insurance companies, banks, and corporate funds. Meanwhile, in LAC, the resources are coming from Development Financial Institutions (DFI) such as MIF, IFC, CAF; which are trying to fill a gap between the government funds and the family-owned companies and high net individuals, which are only the 9% of limited partners in US. Sometimes the main reason why pension funds can not invest in VC is regulation.

In LAC, governments are attempting to close this gap in different ways. There is the case of the Mexican Pension Funds which invest sometimes in other funds using CKDs or the National Value Commission (Local SEC). Argentina is approving mutual funds like the one NXTP Labs has presented. Governments need to invest in venture funds to contribute to innovative ecosystems.

The role of the governments in the LAC entrepreneurial landscape

In Latin America the investment ecosystem is getting stronger. Innovation grows slowly if it is not accompanied by capital. In this way, one key improvement in the region is that entrepreneurial support as part of regional government agendas.

Governments have concluded that the only way to generate local innovation is with dedicated funds and policies that facilitate the creation and good business administration of this type of enterprise. LAC governments are finally recognizing that without public policy and dedicated funding, an ecosystem like Silicon Valley is impossible. It is a fact that behind every great company that started in Silicon Valley, one can trace government funds, as Mariana Mazzucato described in The Entrepreneurial State in 2013.

This evidence has helped create government programs in the region during the last years.

In Mexico, INADEM and NAFIN teamed up to replicate the Yozma model, believing that spreading money across as many funds as possible has its advantages. For one, the number of companies funded by venture capital is what matters in job creation and GDP growth, rather than the actual amount invested in each company. More venture capital flowing means that more investors are provided with the opportunity to learn the trade.

In Chile, the long term political agenda on entrepreneurship has attracted more funds and entrepreneurs. Two of the initiatives we can describe are CORFO and Startup Chile. We should also take into account the Chilean pension reform launched last year.

In Argentina, that has always been an active entrepreneurial ecosystem, the government has recently passed an entrepreneur's' law that includes fast-tracks for company registration, new channels of financing, attractive tax incentives for investors and other unprecedented features. It’s also a tropicalization of Yozma model.

What is still missing?

Besides the private and public investment, the other outstanding debt as a region is incorporating more women as founders of high-impact startups and venture capital fund managers, as well as investing in gender-diversified startups. Unfortunately, it’s slow work all around the world, but things are getting better.

Universities are arriving a bit late to join the ecosystem mostly because the areas of research and development are usually divorced. Success cases like Technion in Israel or Stanford in US took decades to develop. There are some universities in LAC creating Centers of Entrepreneurship, IAE in Argentina is one of the oldest in the country, UDESA (Argentina), Prodem at UNSAM (Argentina), Tecnológico de Monterrey (México), but we are still missing companies like Yissum, the technology transfer company of The Hebrew University of Jerusalem or similar.

We are better, we are on track, but there is still a long way to realize our potential.

Marta Cruz

Cofounder & Director, NXTP Labs

Marta has worked for more than 8 years at MRM Worldwide, the McCann Worldgroup digital agency, as Latam Regional Director, managing accounts likes of HP, Intel, Coca-Cola, GM, Hilton Hotel, Nortel and MasterCard. Marta has a BA degree from Buenos Aires University- and a postgraduate specialization in management from IAE, Austral University. She is also professor at San Andres University (BA) and ADEN Business School.

Ariel Arrieta

Cofounder & Director, NXTP Labs

Ariel is a serial entrepreneur. Since 1994, he is involved in the Internet/Online Media Industry. He founded Digital Ventures, Directa Network, Performa Network, Afiliados Hispanos and InZearch all online advertising companies acquired by FOX in July 2007. He is a frequent speaker at AdTech, IAA, IAB, Online Marketing Europe, OMD, Marketing 2.0 and AMDIA among others. Ariel has completed OPM at Harvard Business School.